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The Future of Fintech in the Middle East 2023

The Future of Fintech in the Middle East 2023

Middle Eastern ambitions drive the Digital Gulf

In 2020, a research paper was released titled 'Statistical models and stochastic optimisation in financial technology and investment science' by Tze L. Lai, Shih-Wei Liao, Samuel P. S. Wong and Huanzhong Xu. This report explored how after the global financial crisis of 2008, the utilisation of technologies such as artificial intelligence (AI), blockchain, cloud and data resulted in the fintech industry boom. These technologies are now referred to as the “cutting-edge” or “ABCD” of fintech.

A growing number of players within fintech are benefitting from automation, particularly those that ensure that these technologies are a central part of processes and operations. The report read: “AI is assuming an increasingly important role in traditional banking as it provides technologies such as voice recognition, natural language processing, and computer vision for useraccount management and fraud detection, machine learning methods and deep learning networks for anti-money-laundering and credit modeling.”

While AI is used for a number of uses, financial institutions and fintech firms alike must be constantly reviewing how best they can use AI to provide an efficient customer service, and whether consumers trust the products they are using. The report continued to comment on how “financial systems have long operated on the basis of trust, for which banks and governments have served to provide top-down control of monetary value.

“Now, however, bottom-up ‘trust-machines’ are emerging through blockchain technology to provide immutable shared ledgers to exchange information digitally and determine value by consensus, as exemplified by bitcoin and other cryptocurrencies.” While trust is the cornerstone of the fintech industry, there are still reservations around the use of particular technologies. Blockchain, for instance, could be used to establish a sharing economy, new online marketplaces or to simply optimise transactions and improve efficiency and security.

Cloud, on the other hand, has seen accelerated uptake and fintech firms are migrating processes to the cloud to achieve efficiency, security, agility, and scalability. In line with this, the report furthered that “mobile and internet payment systems are closely connected to cloud computing. The past ten years have witnessed increasing adoption of cloud computing by financial institutions around the globe. As a highly regulated industry, there are many challenges for the financial industry that handles sensitive personal information to use cloud computing for core business processes such as credit risk management and customer services.”

Further to this, for digital banking, digital payments, personal finance, lending, and investment – the fintech industry as a whole – data is the most important source for the analysis of financial products and services, bridging the gap between security and satisfaction. Many companies, countries and regions have forged ahead in leveraging data, cloud, blockchain and AI. One such region is the Middle East, which has seen exponential growth with an influx of fintech startups being established, the Islamic banking industry boom and increasing internet and mobile phone usage.

Statista projections revealed that there would be 465 fintech companies established in the Middle East by the end of 2022. Alongside this, the United Arab Emirates (UAE) is leading the charge in regard to fintech in the region with 30 companies as of 2015, followed by Egypt with 17 and Jordan and Lebanon with 15 fintech startups each. Within the Middle East, digital payment was the most direct service used by banking customers in the region and the fintech adoption rate is especially high amongst younger people and has increased steadily due to the increased usage of smartphones.

This surge of innovation also encouraged the traditional banking sector to push forward with full scale digital transformations or launch digital banks that can operate under established bank’s licenses. To name a few, these include lia by Bank ABC, Liv by Emirates NBD, meem by Gulf International Bank, Neo by Mashreq and Now by CBS. The opportunity across fintech in the Middle East is vast, but certain niches are also increasing in popularity.

For instance, in 2017, there were 1,389 sharia-compliant financial firms worth a combined $2.4 trillion in assets in 56 countries and the Islamic finance industry grew 11% YOY because of fintech growth in the Middle East, according to Reuters. The article continued to reveal that Islamic banks continue to retain the lion’s share of the industry, accounting for 71% of total assets, but growth remained muted at 5%, with consolidation pressures mounting in the Gulf and Southeast Asia.

Statista also found that while the majority of Islamic fintech companies are based in the United Kingdom, followed by Malaysia and the United Arab Emirates, only nine Islamic fintech companies are based in Saudi Arabia.

Saudi Arabia has the largest market for fintech services with $17.9 billion, while the net largest market for Islamic fintech services was in Iran worth $9.2 billion.

If the Middle East leverages technologies such as AI, blockchain, cloud and data, the region’s fintech firms will only prosper across the digital banking, digital payments, personal finance, lending, and investment sectors. This Finextra report, in association with Paymentology, compiles expert insights from a range of firms including, FIL, MENA Fintech Association, NOW Money, Tarabut Gateway, Tweeq, Strategy& (part of the PwC network), and Wio Bank, and provides predictions for the future of fintech in the Middle East.

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